Asset Revaluation

Both the bad debts written off and the new provision reduce the realizable value of debtors, so both are losses charged to Revaluation Account. First write off bad debts of ₹5,000 from total debtors of ₹75,000. The remaining debtors are ₹75,000 − ₹5,000 = ₹70,000. The required provision is 4% of ₹70,000, equal to ₹2,800. Therefore the total debit is ₹5,000 + ₹2,800 = ₹7,800. Option A gives only the provision and option B gives only the bad debts, so each omits one required adjustment. The correct total revaluation loss and debit is ₹7,800, making option C correct.

The liability has a book value of ₹40,000, but the firm will settle it at a 10% discount. The discount is ₹40,000 × 10/100 = ₹4,000, so the amount actually paid is ₹36,000. The firm is released from an obligation of ₹40,000 by paying only ₹36,000; the saving of ₹4,000 is a gain. At reconstitution, such a gain is credited to Revaluation Account, while the liability account is closed or adjusted for the settlement amount as appropriate. The complete liability amount is not the gain; only the difference between the recorded obligation and the settlement amount is relevant. Therefore option A is correct.

The vehicle value decreases by ₹18000 so it is a revaluation loss. When an asset decreases Revaluation Account is debited.

Increase in an asset is a gain and is credited to Revaluation Account. Furniture Account is debited to increase it.

The governing concept is that both the bad debts written off and the newly created provision reduce the recoverable value of debtors, so both are losses in revaluation. First, deduct bad debts of ₹9,000 from ₹1,25,000, leaving ₹1,16,000. The required provision is 6% of ₹1,16,000, which equals ₹6,960. Therefore, total revaluation loss is ₹9,000 + ₹6,960 = ₹15,960. Option D gives only the provision and ignores the bad debts. ₹7,500 is not 6% of the adjusted balance, while ₹14,460 results from an incorrect calculation. Hence, option A is the complete loss.

The new required provision is ₹8000 while the old provision is ₹12000. Excess ₹4000 is a gain and will be credited.

Increase in stock value = ₹1,80,000 × 8% = ₹14,400. Writing off the obsolete goods causes a loss of ₹6,000. Therefore, the net revaluation effect = ₹14,400 − ₹6,000 = ₹8,400 gain. Hence, option A is correct. In such questions, treat an increase in asset value as a gain and obsolete or worthless stock as a loss.

Revaluation profit is distributed among the old partners in their old profit-sharing ratio. The total ratio is 9 + 6 + 5 = 20, so the second partner’s share is 6/20 × ₹1,00,000 = ₹30,000. ₹45,000 represents the first partner’s 9/20 share, not the second partner’s share. Exam tip: Use the old ratio for distributing revaluation profit or loss among existing partners.

A revaluation loss is debited to the partners’ capital accounts in their old profit-sharing ratio. A’s share is ₹45,000 × 11/15 = ₹33,000, so A’s capital account will be debited by ₹33,000. ₹12,000 is B’s share. Remember that a revaluation loss reduces a partner’s capital, so its effect is a debit.

The decrease in machinery is ₹2,40,000 − ₹2,10,000 = ₹30,000, which is debited to the Revaluation Account. The unrecorded liability of ₹14,000 is also a loss and is debited to the account. Therefore, total debit = ₹30,000 + ₹14,000 = ₹44,000. ₹30,000 would result from considering only the machinery decrease and ignoring the liability. Exam tip: A decrease in an asset and an unrecorded liability are both recorded on the debit side of the Revaluation Account.

Credit side is higher so there is profit of ₹14500. It will be credited to old partners in the old ratio.

Decrease in liability is a gain for the firm so it is credited to Revaluation Account. Loss items go to the debit side.

The provision was ₹8000 more than the actual claim so the excess is a gain. It will be credited to Revaluation Account.

Decrease in equipment value = ₹98,000 × 15% = ₹14,700. Recording the unrecorded equipment creates a gain of ₹5,000. Therefore, net loss = ₹14,700 − ₹5,000 = ₹9,700. A decrease in an asset’s value is a loss, whereas the recognition of an unrecorded asset is a gain in the Revaluation Account. Exam tip: calculate each revaluation adjustment separately before finding the net effect.

The increase in land value is a revaluation gain of ₹5,10,000 − ₹4,00,000 = ₹1,10,000. Brokerage paid by the firm is a revaluation expense and reduces the gain by ₹9,000. Therefore, net revaluation profit = ₹1,10,000 − ₹9,000 = ₹1,01,000, making option B correct. Option A ignores the expense and option C adds it instead.

Revaluation expense relates to the pre-admission firm. Its final effect falls on old partners in their old ratio.

Memorandum Revaluation Account is used when the effect of value changes is given but book values are not changed. This is the key sign of the alternative method.

The second part gives the reverse effect to keep books at old values. Therefore first part profit becomes loss in the second part.

The second part in memorandum method is shared among all partners in the new ratio. Its purpose is to retain original book values.

Decrease in investments is ₹18000 and it is covered by the ₹25000 fund. The remaining ₹7000 is a gain for old partners.

Removing a wrongly created liability creates a gain. Therefore Liability Account is debited and Revaluation Account is credited.

The governing concept is to classify each change as a gain or loss before calculating the net revaluation result. The building increase of ₹90,000 is a gain, and the decrease in creditors of ₹15,000 is also a gain because the firm’s liability falls. Total gains are therefore ₹90,000 + ₹15,000 = ₹1,05,000. The stock decrease of ₹24,000 is a loss, and the newly discovered outstanding rent of ₹11,000 is an additional liability and another loss. Total losses are ₹24,000 + ₹11,000 = ₹35,000. Net profit is ₹1,05,000 − ₹35,000 = ₹70,000. Hence, option A is correct.

Expiry of half of patent value causes a decrease of ₹30000 in the asset. It will be debited to Revaluation Account.

The usefulness of prepaid expense has decreased by ₹6000. A decrease in asset is debited to Revaluation Account.

Liability has increased by ₹2700 so it is an additional loss. Only the increased amount is debited to Revaluation Account.